Janet Yellen Says “No Bailout of SVB” But What Does That Mean?

March 12, 2023

•

7:52 pm

•

Image courtesy of FFIEC via Wall Street Journal

Yellen rules out bailout for Silicon Valley Bank: “We’re not going to do that again”https://t.co/t2Hex8TGbL

— Vik Soien (@VSoien) March 12, 2023

Janet Yellen was purposely elusive on Face the Nation today, evading nearly every question asked.

Face the Nation: Your counterpart in the United Kingdom has said that the government there has ruled out a bailout of the UK arm of Silicon Valley Bank. Have you also ruled out that kind of government intervention?

Yellen: Well, let me be clear that during the financial crisis, um, there were investors and owners of systemic large banks that were bailed out and we’re certainly not looking and reforms have been put in place means that we’re not going to do that again. But we are concerned about depositors and we are focused on trying to meet their needs.”

Mish Translation: We have not yet decided or I am unwilling to say whether or not we will bail out depositors.

How Big a Haircut?

In a previous post on SVB, I asked “How Big the Haircut?”.

I came up with a crude guess of 18% in a range of 5% to 30%. The lead chart suggests I was in range.

Yellen’s comments leave open the possibility of 0% haircuts. In other words, a bailout.

Regulators to Hold Auction for Silicon Valley Bank

With no details, the Wall Street Journal reported “Regulators to Hold Auction for Silicon Valley Bank.”

Sold!

I expect to see that announcement later today or perhaps early next week.

Here’s my translation. The Fed will pressure some large US bank or consortium of banks to buy SVB.

The Fed will seek to make depositors whole but perhaps fall a bit short, perhaps something like 2% just to be able to say there was no bailout.

SVB deposits are worth money to some bank provided they do not flee. But there is no way to prevent that, at least that I can legally see.

Cash Burn

Forget about the losses on securities, the true cause of Silicon Valley Bank’s collapse is “cash burn”:

Money-losing companies who banked at SVB were taking money out to fund operations.

They required constant inflows of venture capital funding which stopped, and…
(1/4) pic.twitter.com/5Ybdm93r7g

— Jack Farley (@JackFarley96) March 11, 2023

How Would the Market React?

I suspect in a positive manner if there is a minimal or no haircut. Perhaps there is a big gap down that gets bought.

It’s all speculation especially given that my “Sold!” proclamation is also speculation.

But longer term, I still expect more rate hikes by the Fed.

SVB Will Not Slow Fed Interest Rate Hikes, Expect a Half Point in March

I still stick with my forecast SVB Will Not Slow Fed Interest Rate Hikes, Expect a Half Point in March

I am amused by responses that people believe the Fed will cut as soon as tomorrow.

I think it’s likely the CPI comes in hot this week and the spotlight turns to still more hikes, lags or not.

The Fed absolutely will not want to pause, let alone cut rates if the CPI is on the hot side.

Rate Hike On March 22
What will it be?

— Mike “Mish” Shedlock (@MishGEA) March 12, 2023

True Cause of the Mess

Jack Farley posts an interesting chart, but the true cause is a Fed induced search for yield mania that funded all sorts of ridiculous ideas.

When the Fed hiked rates, marginal (at best) ideas could never get off the ground and money headed for the door.

If there are No SVB Bailouts, Will There Be Financial Armageddon?

Yesterday, I asked If there are No SVB Bailouts, Will There Be Financial Armageddon?

My answer yesterday was no and I am even more convinced of that today.

I fully expect an announcement tonight, even if SVB is not yet sold, that Monday morning most of the deposits at SVB will be made available to depositors.

The Fed and FDIC will make everything available up to the largest plausible haircut they foresee.

Don’t be surprised by any market reaction. It’s still a big crap shoot with everyone betting on when the Fed will cut.

Thank you Fed.

Addendum

BREAKING NEWS ON STIGMA RISK FRONT:@federalreserve considering easing terms of banks’ access to its discount window, giving firms a way to turn assets that have lost value into cash w/o kind of losses that toppled SVB Financial Group. The Fed declined to comment.@business

— Danielle DiMartino Booth (@DiMartinoBooth) March 12, 2023

This post originated at MishTalk.Com.

Thanks for Tuning In!

Please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

If you have subscribed and do not get email alerts, please check your spam folder.

Mish

Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

This post originated on MishTalk.Com

Thanks for Tuning In!

Mish

121 Comments

Newest

Oldest Most Voted

Inline Feedbacks

View all comments

Jerry

1 year ago

link to reuters.com

grepper

1 year ago

Reply to Jerry

she owes the public an explanation about recent events about what needs to happen so that and 2006 doesnt happen again

JackWebb

1 year ago

Reply to grepper

You seem to imagine that she knows enough to explain anything beyond how a toenail clipper works. I don’t want that idiot’s “explanation” for a single thing.

david halte

1 year ago

Yellen has blabbed about using a special purpose vehicle to bailout uninsured depositors. SPV became familiar when the Fed purchased corporate bonds during the pandemic. The following are online definitions:

The Federal Reserve established a special purpose vehicle (SPV) through which the PMCCF was able to make loans and purchase bonds. The Treasury, using funds appropriated to the ESF through the CARES Act, made an equity investment in the SPV.

The Primary Market Corporate Credit Facility (PMCCF) was established to support credit to large employers for bond and syndicated loan issuance so that they would be better able to maintain business operations and capacity during the period of dislocation related to the pandemic.

The Exchange Stabilization Fund (ESF) is an emergency reserve fund of the United States Treasury Department, normally used for foreign exchange intervention. This arrangement (as opposed to having the central bank intervene directly) allows the US government to influence currency exchange rates without directly affecting domestic money supply. As of September 2019, the fund held assets worth $93 billion, including $50 billion in special drawing rights (SDRs) from the International Monetary Fund (IMF).

Will Yellen raid whatever remains in the CARES Act, like Biden tried with student tuition bailout. Europe facing similar problems, will be competition drawing from the IMF. As a side note, the agent of authority for the Fed’s corporate bond transactions is BlackRock. BlackRock had a 7 percent stake in failed Silvergate Capital.

StukiMoi

1 year ago

Reply to david halte

“Yellen has blabbed about using a special purpose vehicle to bailout uninsured depositors. SPV became….”

“…special purpose vehicle (SPV) through which the PMCCF was able to make loans and..”

etc., etc.

Jargon’y sounding babble and acronyms are how the truly stupid and illiterate believe they sound less retarded than they, to anyone literate, obviously are.

So you end up with SPV and PMCCF and ESF and CARES ad SDRs. As well as CPI and GDP and Deflators and Contagion and the rest. Absolutely none of which has any economically meaningful definition at all. Heck, no definition whatsoever, at all. Just pure mumbo-jumbo. Not in any way whatsoever different from six year olds’ equally “clever” pig latin.

And this trivially-to-anyone-with-even-half-a-brain nonsensical tripe, is then supposed to serve as some sort of excuse for why two magical, equally ill/un-defined guys named “The Economy” and “We”, supposedly “need” these absolute and utter illiterates to; always entirely arbitrarily the end; rob productive people, in order to hand ever more loot as “stimulus” to equally useless and clueless and illiterate members of the illiterate idiots’ social circle. Since, after all, that is always what it boils down to: Robbing better, more intelligent, harder working and more useful and productive lifeforms; whether by debasement, taxation or “regulation”; in order to keep stupider, less capable, less worthvile, less productive idiots who failed once again (since that is all they do) from seeing the cost of their always failed and unintelligent misallocations and cluelessness.

The above is the only function ANY of these acronyms and supposed “measures” serve. None of them mean anything real. None serve any analytical purpose. None serve any economic function. None illuminates anything. None contributes to any understanding (Duh, I suppose, since the only ones spouting them are ones who per definition don’t have any understanding….). Just mindless, childish nonsense aimed solely to fool clueless easily fooled indoctrinates into falling for being robbed yet again.

Casual_Observer2020

1 year ago

Looks like Signature Bank had $110B. It is now the third largest bank failure after WAMU and SVB.

MPO45v2

1 year ago

Reply to Casual_Observer2020

First Republic gets additional funding. Why would they need additional funding? And why is JPM giving it to them? I’m gonna pull some money out of JPM tomorrow.

link to wsj.com

Casual_Observer2020

1 year ago

I’m having a problem making ends meet. Where is my 0% credit facility. Let’s have the Fed backstop individual bank accounts. Isn’t that what they are effectively doing now ?

StukiMoi

1 year ago

Reply to Casual_Observer2020

“Isn’t that what they are effectively doing now ?”

The Fed is now doing exactly what they always do: Transferring wealth FROM people like you. TO these connected idiots. Who are again, just like all the previous times the exact same things happened, too stupid and incompetent to not squander all the wealth The Fed has stolen from them before.

The Fed is not there to backstop individual bank accounts per se. But specifically to backstop the individual bank accounts of only the 5% stupidest, and least useful and productive, members of society. By way of transferring wealth TO them, and FROM the individual bank accounts of the 95% who are more productive and less universally worthless.

After all, the most useless and stupid 5%, are exactly ones who can be relied on to have no other available mean of retaining any of their status’ and privileges. Hence can be relied upon to survive solely at the discretion of The Fed’s actions.

While, conversely, to anyone with any individual aptitude and ability at all, central banks serve no useful purpose at all. They serve solely as a drag. The only ones benefitting, in any way, from their existence; are idiots too stupid and useless to otherwise hack it.

Casual_Observer2020

1 year ago

So I don’t wanna hear that social security or Medicare are underfunded. Let’s use the Fed, Treasury etc to backstop everything through credit facilities. Why are we even fighting over any fiscal issues anymore.

MPO45v2

1 year ago

Reply to Casual_Observer2020

Yup and those student loans can be absorbed by the Fed at this point too. ALL roads lead to socialism.

MarkraD

1 year ago

Reply to Casual_Observer2020

They have one thing in common, piss-poor decisions made by people with conflicts of interest who benefit from the bad decision making or are protected from consequence.

Why penalize victims, go after the perps, unlike 2008, when not a single bank exec saw a courtroom while millions of Americans suffered the consequences.

StukiMoi

1 year ago

Reply to MarkraD

“Why penalize victims, go after the perps,…”

Because 95% of nominal beneficiaries aren’t “perps” in the traditional sense. Instead, they are You and Me and everyone who is an “owner” of nearly anything; from “homes” to “investments.” I got bailed out. Didn’t need it. Just like NOONE, not one person, guaranteed, within lots of degrees of separation from Silicon Valley Bank, IN ANY WAY, “needed” to be bailed out. But they/we still were. Bailed out by way of robbing, by debasement, homeless single mothers. As well as sound Silicon Valley startups who bleed out prematurely because WE, the bailed out, can now continue to bid up the rent they have to pay.

Like all else in the real world; there are no pure black and white. Everything is degrees. Hence: The only way to prevent some from benefitting from Fed and Government theft from others; is to remove all mechanisms by which such theft CAN happen. Which, per reference to this specific case means: 1) No bailouts no matter what. Of anyone. But furthermore also 2) Getting rid of any institution and arrangement which in any way whatsoever has any means with which to effect any bailout. Bailout meaning transfer of wealth from A to B without A’s explicit and enthusiastic consent.

Do that, and you have no more “perps.” Don’t do that, and all you get is ever more of the same “but mommy, I’m special snowflake! And my lobbyist says it’s diiiiferent thiiiis tiiiiime..” With the same result: We, the guys with $250K+ in the bank and $250K “homes” supposedly “worth” millions, getting bailed out by wealth transfers. From starving children and hard working productive people trying to compete.

MPO45v2

1 year ago

Well it seems FDIC now has infinite insurance through the Fed or should it now be called Fed Insurance Deposit Corporation. At this point, why have an FDIC at all? Just gut the agency and let the Fed charge premiums and print money when things go bad. This whole thing is hysterically funny and profoundly sad at the same time.

Every banker across america can now start gambling with depositors money because the Fed will bail them out. Have at it…

MarkraD

1 year ago

Reply to MPO45v2

What would it mean, if say, your bank told you your life savings were gone?

I’m not saying you have no point, but there’s another side to it, many of the commercial accounts at this bank were also lenders that were required to keep the money there.

MPO45v2

1 year ago

Reply to MarkraD

Well that’s like telling an abused person to stay near their abuser because you gotta think of the children. And now the abuser has free reign to do as they please because no laws will be enforced and there is a get-out-of-jail free card available to every abuser.

MarkraD

1 year ago

Reply to MPO45v2

Penalize the abuser, not the wife n’ kids.

MPO45v2

1 year ago

Reply to MarkraD

The kids wanted student loan relief but there was no money for that but we have billions for abuser bankers.

grepper

1 year ago

Reply to MarkraD

i followed the rules and have multiple accounts setup so that they were under 100k prior to 2008.

it was a pain to do, but i spread my risk around following the rules.

now people didn’t follow the rules and their made 100%? when do they learn?

the risk management at the companies leaving money > 250k, was sorely lacking! they should have been punished. there are plenty of tools for businesses to get around this limitation….and many business do the right thing.

the one big issue i mention on another response is that, many of the start up business were required to only do banking at SVB. this requirement was made by the VCs for personal preferential treatment at SVB. so essentially the VCs got bailed out here.

the VCs f*ed up and got caught with their pants down, and they are being bailed out.

these depositors were mostly business and wealthy patrons. they *should* have known better. and they should bear the consequences of their decisions.

MarkraD

1 year ago

Reply to grepper

Again – “…many of the commercial accounts at this bank were also lenders that were required to keep the money there.”

A successful small business is supposed to go under because you despise the VC’s.

I personally think the Fed and deregulation is to blame, and from what I can see, they’re eating it, only time will tell though, I’m sure that cost is extracted from us.

worleyeoe

1 year ago

Reply to MarkraD

The Fed is definitely to blame. They’re the ones who came up with all the crazy ways to intervene in markets with QE. The results are bloated asset bubbles from the stock market, to housing, to the Fed itself.

The Fed is now $40B in the red since last October when they started losing money. SVB is just the first of what may be many black swan events of banks / hedge funds / investors going bankrupt as the contagion spreads. If they could only print their own money like the Fed, all would be well.

Alas, that’s not going to happen.

MarkraD

1 year ago

Reply to worleyeoe

I agree with all but a single missed detail.

The Fed has been the band-aid for bad government fiscal policy for decades now, after 2008 if the Fed hadn’t intervened, we’d be 3rd world now.

It wasn’t the Fed that repealed Glass-Steagall, it’s not the Fed that opened the global trade/outsourcing door, tax policies and deregulation that has lead to repeated crises like the opioid, or sub-prime crises and the stagnation of median wages.

The Fed has fault, but I it’s not ALL Fed…most of the blame falls on money in politics, legalized bribery that pawns bulls*it theory on the public, like “Trickle-down” tax cuts or deregulation that only serves to make the wealthy wealthier.

grepper

1 year ago

Reply to MarkraD

i said this elsewhere, but i dont want the system to fail. and agree that we were looking into an abyss in 2008. and the fed needed to step in. but why was that? finance gone off the rails. just like now.

these banks failures are multi-faceted, but the FRB is a huge culprit….printing money at low interest rates for far too long. this led to these banks reaching for yield…..which is an investor no no….well it works until it doesn’t.

frb hasn’t learned anything from it’s mistakes.

we’ve been thru three financial crisis since 2000. is this the beginning of the fourth? our financial system is broken and sick.

MarkraD

1 year ago

Reply to grepper

“our financial system is broken and sick.” – Glass-Steagall, repealed.

Politicians afraid to lose their jobs catering to the whims of the highest bidder have led to an overdependence on Fed pressing rates lower and lower to keep households above water and supplement a government taxing billionaires in single digit tax rates, now we’re in a rock/hard place, low rates are leading to inflation, higher rates are hurting the economy and yielding unexpected consequences.

Get bribery out of politics, the Constitution does not say bribery is free speech, it’s the most demented statement I’ve ever heard a judge say.

grepper

1 year ago

Reply to MarkraD

“A successful small business is supposed to go under because you despise the VC’s.”

i dont despise VCs. I despise the fact there are no consequences for making poor choices. i think casualob is saying the same thing differently.

MarkraD

1 year ago

Reply to grepper

“I despise the fact there are no consequences for making poor choices.”

I get that, but depositing money into a bank isn’t, nor should be, like examining the fundamentals of a stock investment, it’s a bank for crying out loud.

StukiMoi

1 year ago

Reply to MarkraD

“What would it mean, if say, your bank told you your life savings were gone?”

It would mea you f’d up. And/Or that you struck out, in what is fundamentally a random world, where “risk free” can never be anything but a chimera.

And: It would also mean you would still have just as much life savings left, even after losing all of it, as most of those who, by way of taxes and debasement, are now being forced to pay, in order to prop up your supposed “life savings.” Those people, third parties; are the ones whose savings should NEVER, ever, under any circumstance, be dragged into any arrangement between you and your banksters-of-choice. Just so that you and said banksters can sit around and play “we’re diiiiiiferent, we’re special snowflake” yet another day.

The homeless laying around San Francisco, also lost all their life savings. At one, or perhaps even many, times. Did you bail them out? After all, just like you, they they f’d up. Or got unlucky and struck out in a fundamentally random world. No different from you. No different at all. There is ZERO justification for bailing out much wealthier you, by debasing them. ZERO.

Robbyrob

1 year ago

is this related to all of the bank apps I see advertised on tveee?

JeffD

1 year ago

Interesting that the FDIC has decided to make all depositors of these banks whole. BTW Did I mention they are both packed with big political donors? But it’s merely a coincidence, I’m sure. Surely, the FDIC has decided to do this in the past, and this doesn’t deviate from all historical precedent. Right? Right?

worleyeoe

1 year ago

Reply to JeffD

The have to “make whole” all qualifying depositors holding up to $250K in each account.

JeffD

1 year ago

Reply to worleyeoe

No. The Treasury came out and said *all* money would be available to depositors.

Siliconguy

1 year ago

Reply to worleyeoe

Washington, DC — The following statement was released by Secretary of the Treasury Janet L.

Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg: Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and

businesses in a manner that promotes strong and sustainable economic growth. After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors.

Depositors will have access to all of their money starting Monday, March 13. No losses

associated with the resolution of Silicon Valley Bank will be borne by the taxpayer. We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.

JeffD

1 year ago

Reply to Siliconguy

Where is the precedent for this? Thiere is none. It is money laundering through the donors. Period.

TexasTim65

1 year ago

Reply to JeffD

Absolutely. Huge political favors called in by the Hedge Funds.

StukiMoi

1 year ago

Reply to JeffD

Virtually everyone within degrees of separation of SVB counts among the connected.

Hence, others less connected will be robbed to bail them out. That’s really all there is to it. This is all America is now: A pure theft racket. Incompetent idiots, and honestly nothing else whatsoever, being handed loot to squander, which previous generations meticulously built up.

astroboy

1 year ago

Serious question. From what I can tell there were many individual accounts of $500K or thereabouts. Who keeps that much money in a savings account? Especially with inflation at 10% for a year now…. Am I missing something here?

Maximus_Minimus

1 year ago

Reply to astroboy

I would make a distiction between keep and park. And term deposits count into the insured total even brokered ones. At least where I am sitting.

astroboy

1 year ago

Reply to Maximus_Minimus

Ah, good point. Thanks.

grepper

1 year ago

Reply to astroboy

businesses

MPO45v2

1 year ago

Reply to astroboy

If you ever become wealthy enough, you will come to understand that having 500k in a bank account for the ultra rich is like you having $50 in a bank account. The scale is entirely different.

The hardest part of getting rich is keeping the money you have safe so you spread it around as best you can.

worleyeoe

1 year ago

Reply to MPO45v2

I don’t pitty any of these people who may loose their shirts. They all made copious amounts of money as they rode SVB higher. They all just got greedy. The risk is right there in their mission statement: venture capital, aka you can make a ton of money but also loose a ton of money.

Anyone with serious amounts of wealth should have known not to concentrate too much of their wealth in such a speculative entity. Time will tell whether or not there’s contagion. A second bank in New York has already been taken over, and Yellen stated they’re looking at a few more after SVB.

While this initial contagion may not spread very wide or deep, it very well could portend what’s to come over the next 12 – 24 months. I for one hope housing takes a bath to the tune of 30%. Anyone who things housing prices are where they need to be is thinking way too much like a real estate agent.

Casual_Observer2020

1 year ago

Reply to astroboy

Maybe that’s their emergency fund (how much they spend in 12-18 months). I know this sounds ridiculous but these people live vastly different lives than you or I.

Sunriver

1 year ago

0% haircuts. SVB sold by end of week.

End of story? Probably not. Many banks have the same solvency issues as interest rates climb.

A lnflationary bailout when the FED supposed to be tightening.

Who’s next?

worleyeoe

1 year ago

Reply to Sunriver

And what about pensions? That’s where the real crisis lies in the next 10 years just like social security.

Casual_Observer2020

1 year ago

So basically the FDIC limit is meaningless because everyone will have access to 100% of their deposits. What’s then point of having any rules or laws when the government backstop everything. Can we now all agree that there is socialism for everyone if they take advantage of the system.

TexasTim65

1 year ago

Reply to Casual_Observer2020

This says Banks should take their entire deposits to Vegas and put them all on Black and double up their money. At worst they get bailed out. Total stupidity bailing them out.

Clearly the Hedge Funds with the big money in that bank called in political favors.

Casual_Observer2020

1 year ago

All Silicon Valley Bank depositors will have access to their money starting Monday, according to a joint statement from the Treasury Department, Federal Reserve and the FDIC.

“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” the joint statement said.

Felix_Mish

1 year ago

Reply to Casual_Observer2020

This is supposed to raise our confidence in “our” banking system? Huh? Seriously? Raise? More like, “Still winging it after all these years, so we can be so confident.”

Will the Matt Taibbis of the world ask, again, “Where are the indictments?” We’ll see.

grepper

1 year ago

Reply to Felix_Mish

there will not be any indictments. there doesn’t appear to be fraud.

making poor investments is not a crime.

Casual_Observer2020

1 year ago

Reply to grepper

The fraud has been institutionalized.

Siliconguy

1 year ago

Reply to grepper

C-level insider selling a month before the implosion sounds like fraud to me.

grepper

1 year ago

Reply to Siliconguy

perhaps….but should be clawed back. i think fdic can go back 2 years. if those execs are well connected the money will not be clawed back

Felix_Mish

1 year ago

Reply to grepper

True. There’s a gray area, though, because, in practice, they are not making the investments. Not if the losses don’t go to them. But, yeah, presumably (assuming no collusion), that loss is on those how bail them out. That is to say, those whose money was “invested” in a losing proposition.

Six000mileyear

1 year ago

The futures market shows a clear elliott wave flat consolidation pattern that started pre-market Friday. Today’s pop following the FED-Treasury announcement fits nicely with wave c of the flat, both structurally and psychologically. I expect a top on Monday or Tuesday.

Casual_Observer2020

1 year ago

Looks like SVB was too big to fail. Fed opening loan facilities and taking on more bad assets. But don’t call it a bailout. Lol.

link to cnbc.com

Sunriver

1 year ago

SVB goes to zero.

BAC, JPM WFC, and C ???

Stay far away.

I like Pepsi and other food-stuff companies today.

8dots

1 year ago

After SVB bank auction will have a buyer, signature bank will start trading

Casual_Observer2020

1 year ago

Signature Bank closed due to systemic risk.

grepper

1 year ago

Reply to Casual_Observer2020

the way the frb/fdic set this stuff up, they must be expecting more problems.

Matt3

1 year ago

Reply to Casual_Observer2020

And depositors will be made whole – no losses!

Matt3

1 year ago

Depositors 100% covered. No surprise. It had to be done that way.

grepper

1 year ago

Reply to Matt3

“It had to be done that way.”

why? fdic had rules in place, why cant people follow the rules?

at this point there is very little reason to have many of the fdic rules, since deposits are now nationalized.

they did this because they are scared….i’m sure when they looked at signature, that sh*t in their pants.

regulatory oversight is way way to lax.

Matt3

1 year ago

Reply to grepper

Because otherwise you will have a run on banks and you’ll only be left with the 4 or 5 largest banks. The runs would cause panics.

The Federal Reserve has the same balance sheet issues. This cannot be discussed.

The Fed is owned by the banks and their number 1 priority is to protect the banks and the banking system.

grepper

1 year ago

Reply to Matt3

i get it. i dont want to see the system up and collapse.

these people get paid millions of dollars without significant repercussions?

frb learned absolutely nothing since the gfc.

yes they are protecting a system, but it’s a cesspool. these people are also trying to save their jobs.

we have been on a bailout rollercoaster for 23 years….

upton sinclair “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

this is just whole scenario is terrible and frb needs stand up and do the right things for society.

TexasTim65

1 year ago

Reply to Matt3

Most other banks would easily survive runs on them. They are allowed to get liquidity from the Fed directly (in fact they reiterated this again today during the bailout talk) as long as they are solvent.

The banks that failed were not solvent.

TexasTim65

1 year ago

Reply to Matt3

I fully expect banks to now take even greater risks than ever. After all this proves there is no downside to taking risks. It literally is free money for banks to invest in anything.

This was a terrible decision.

Doug78

1 year ago

“losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”

The cost of making all depositors whole will be paid by an increase in deposit insurance premium on all banks. End of story.

grepper

1 year ago

Reply to Doug78

“deposit insurance premium on all banks. End of story.”

and higher fees for you do your banking. that’s the rest of the story

Doug78

1 year ago

Reply to grepper

link to fdic.gov

This gives you the rate. It is really not too much so spread out over all banks the additional cost is negligible for the ordinary individual.

grepper

1 year ago

Reply to Doug78

“ordinary individual”?

that link does dispel the frictional costs that it costs to set up and manage those facilities. what happens where there’s more issues? those costs could get out hand.

the cost isn’t just facility cost.

there’s more… moral hazard at play here.. those execs that got canned, made millions, tens of millions to screw things up. how do you prevent that behavior in the future? how do you minimize the risks for future investors in those companies. there isn’t anything in place, it encourages even more risk taking…there’s a high cost to that.

i guess this story isn’t over. we will be paying for this for a long time…

Doug78

1 year ago

Reply to grepper

The execs who made the bad decisions did get canned and there will be clawbacks. They will be sued and possibly indicted so they will lose a lot of money and maybe all of it. What more do you want? They made bad investment decisions but as far as I see did not commit fraud. They might have and if so it will come out.

The frictional cost argument is not valid because the added friction will be negligible for the individual and if you had looked at the FDIC calculations of it you would see that.

I suppose you are against the principle of insurance for depositors because it does not let the market work and eliminates moral hazard for those with deposits under $250k then? Is $250k too high or do you want to eliminate it altogether?

What do you want?

MarkraD

1 year ago

Since 2008 the Fed has been non stop trying to rebalance an economy that was demolished as a result of deregulation, repealing Glass-Steagall which gave us the sub-prime crisis.

We now stand at the possibility of banks starting to fail due to policy/rate reversal to counter the resulting inflation of low rates 15 years after, and once again the Fed is engineering through a new solution for a consequence of an old solution to an older problem.

This problem started in 1980 with Reaganomics, deregulation, wealthy tax cuts and the ridiculous notion of “trickle down”, since then both household and government debt has skyrocketed, the Fed has made borrowing continuously cheaper to offset lack of median wage growth and tax revenues, wealth disparity has exploded – giving wealthy campaign donors ever more money to buy elections, and once again the Fed is trying to repair fiscal fraud done by a government that’s owned by those campaign donors.

I’m curious as all get-up to see the details of todays Fed plan to salvage banks failing over increased rates, I’m sure it entails some “miraculous” way to avoid pain, wondering what other consequences are coming and how the Fed will band-aid those.

StukiMoi

1 year ago

Reply to MarkraD

“This problem started in 1980 with Reaganomics”

It started in 1911.

With the accelerator pushed all the way to the floor in 1971.

Reagan in the 80s, was just when the effects of 1971 was starting to be widely observed.

Just as t took until the 20s, for the effects of 1911 to be widely observed.

Then, the 30s and WW2, were both huge blessings. Yes: WW2 was a huge blessing. Becasue: So singularly destructive is centralbankonomics, financialisation and bansterisation; that the beneficiary effects of hot wars: Destroying and redistributing all of of what centralbankonomics, financialisation and bansterisation always and everywhere builds up and leads to; nets out to positives greater than the negatives accruing from pointless murder of a mere few tenths of millions of innocents.

It’s the same story today: A century from now, Americans will be better off if the current clownshow is nuked tomorrow, and hence reset, than if it is allowed to continue on decaying for another hundred years. Which is not to say there aren’t alternatives superior to both. But none of those alternatives will ever be within the limited intellectual grasp of anyone dumb enough to believe in neither governments, central banks, “ownership societies” nor financialization.

Casual_Observer2020

1 year ago

Signature bank seized by regulators due to systemic risk fallout from SVB.

link to cnbc.com

Jeff Dog

1 year ago

Reply to Casual_Observer2020

It sounds like no deposits are being lost at any of the banks that are closing.

Jeff Dog

1 year ago

If it is sold like Bear Stearns, for example, there is no haircut, right. If it is a liquidation like Lehman Brothers, then depositor money can be lost.

JackWebb

1 year ago

As expected, the Feds have announced the bailout. Janet Yellen is a stupid liar, and the media will go along because they’re a pack of stupid, lazy liars themselves. Nothing to see here. The gangsters are driving the getaway car, provided by the federal government.

grepper

1 year ago

Reply to JackWebb

yep…pretty disgusting. depositors(corresponding VCs) will be made whole when they took an ugly risk.

*moral hazard* at play.

although tax payers are not on the hook, someone is.

also looks like signature bank was closed today and the depositors will be made whole too.

MarkraD

1 year ago

Reply to grepper

Depositors aren’t investors.

grepper

1 year ago

Reply to MarkraD

“Depositors aren’t investors.”

that’s right so why have CRO? or why not just gamble like theres no tomorrow when investing depositors money? these moves essentially have nationalized all that risk.

that’s the moral hazard.

tax payers will not be directly on the hook for the losses…fdic insurance paid by banks will….which means, guess what, higher fees for bank transactions, for you the bank payer.

our brethren at the fed are spineless and scared sh*tless.

MarkraD

1 year ago

Reply to grepper

Decades of ever decreasing borrowing rates to offset wage depletion to stimulate consumption, as a result of bad fiscal policy, globalization and increased social entitlements, resulting in substantial growth in wealth disparity.

Both household debt and government debt is increasingly unsustainable.

Something’s gotta give, Reaganomics has failed after 40 years.

JackWebb

1 year ago

Reply to grepper

You cannot have moral hazard without morality.

Six000mileyear

1 year ago

Banks can’t sell “assets” in their their portfolios to buy up SVB without taking huge mark to market losses. All it would take is 5-10% of deposited money being withdrawn to take down the system.

MPO45v2

1 year ago

Here’s the new term for the GFC redux 2023 style, it’s “Bank Term Funding Program” so learn it. It’ll start with $200 billion for SVB then turn into a multi-trillion boondoggle for the rich.

link to cnbc.com

whirlaway

1 year ago

It looks like their goal is to do a bailout that doesn’t look like a bailout.

MPO45v2

1 year ago

New York Signature bank just went down in flames. Got T-bills?

link to cnbc.com

Asia in sell off mode.

MPO45v2

1 year ago

No bailout but a “backstop!” Lol.

link to cnbc.com

8dots

1 year ago

SIVB peaked in Nov 2021 at 763. SIVB was hopping up and down on 2022 rolling hills, in a low slog down, in a very symmetrical way, only short sellers can do. // SIVB weekly Lazer : Jan 10 to Apr 18 2022 highs // parallel from : Jan 22 to July 18 lows. SIVB escaped the hot beam, popped up, and hug the Lazer for several weeks. Hugging is illegal. On Mar 8 SIVB short sellers opened a window to hell, not to a Fed window, and plunged in a bungee jump for fun < Mar 2020 low. It stopped on Mar/May 2014 backbone, 135/100. Fri close at 106.04 stayed inside.

Doug78

1 year ago

link to babylonbee.com

MarkraD

1 year ago

Reply to Doug78

LMAO, I shouldn’t laugh, but I can’t help it…welcome to free market capitalism!

Get rid of the damned pesky regulations that inhibit capitalism!

Bam_Man

1 year ago

Clueless academic Janet Yellen is not qualified to manage a gum ball machine.

Thetenyear

1 year ago

I agree there will not be an immediate rate cut. First the FED will “fix” the SVB problem. Then, when the smoke clears, they will cut for totally “unrelated” reason. It’s what they do.

When cuts don’t stop the crash, congress will step in by sending us all checks. It’s what they do.

MarkraD

1 year ago

Reply to Thetenyear

I’d bet, this weekend, the Fed is scrambling to asses total systemic risk, turns out the reduced value of treasury assets is potentially a common problem for banks, especially with the possibility of policy inducing a recession.

I wouldn’t be surprised if the Fed overlooked this dilemma, to be fair, it’s been fifty years since the Fed has reversed rate trajectory, there will be a lot of “unforeseens”.

MPO45v2

1 year ago

I think the big picture is being lost here by many commentators…the Fed was never going to be able to contain inflation with 25 basis points hikes here and there. Not with 20 to 40 million boomers retiring and leaving the workforce over the next few years. Not with ‘de-globalization’ happening around the world and not with depleting resources and growing populations around the world and a transition to green energy on top of that…it’s just too much.

There needs to be a big event to wipe out lots of jobs and bring inflation down globally. Inflation is still rampant in most of the world despite some minor reprieves in the US.

This (SVB collapse) isn’t the “big event” either if anyone is wondering. There are huge puts volumes forming on major indices for September 2023 just like a large storm front forming out in the Atlantic that turns into a hurricane. I will keep an eye on it and maybe jump into the fray but I am still holding put positions on home builders for January 2024 expiry. It’s getting harder and harder to find a safe haven.

Bookmark this post and review when September rolls around, I hope it’s a big nothing burger.

MarkraD

1 year ago

Reply to MPO45v2

I’m just baffled at the complete lack of mention of “supply”.

Constricting demand is only half of the inflation equation, no one is talking about ways to increase supply.

While I get that it’s mostly labor and energy shortages, well, you know….that “immigrant” thing, and, well, any mention of solar, wind, or EV’s means you’re a liberal or at least a rino.

StukiMoi

1 year ago

As I said: “Therein lies the rub….”

It’s like, you know, we won’t bail out if they call themselves “investors”, but if they say: mommy I’m “depositor!” well, like thiiiingz are alwaaaayyyys diiiiferent thiiiiiz tiiiiime….

End result being (duh!):

The retards will, again, as always, be fed loot stolen from those who are less retarded. Such that we can reach a new milestone: 99% of all C-suite monkeys, and 99% of all “owners” of anything, being reliably retarded with no redeeming quality of ay sort whatsoever. And hence: 100% dependent on Fed largesse, and nothing but, for all and everything they have. Which is an increase from the current 98%. It’s like, going up! UP! Up! says the monkeys….

And alo: That’s exactly why communist states, where only 90% of “owners” and “executives” are flat out retarded, will continue to simply walk away from “us” at everything. As they have an entirely unbroken record of doing, since 1971. There is NO other, alternate, but maybe, reason why they are doing so. NO scary yellow child laborers. No mean Xi. No drinking radioactive water. Just the simple above: Everyone in America who owns, and hence runs, anything; public as well as private; is by now utterly illiterate, and truly stupid. That’s it. And it’s only getting worse.

MarkraD

1 year ago

Reply to StukiMoi

Most of my clients have $250 in the bank account they write my check from, if their checks bounce I won’t think of their checking accounts as investments.

I certainly didn’t think my time, work and materials spent for those clients was a risk associated investment.

This is why most checking accounts pay no interest, in fact, they charge fees.

I get your angst over baling out private entities, but I highly doubt most folks with more than $250K in the bank consider that money an investment, most small businesses have that much in the bank, it’s not simple cut and dried.

StukiMoi

1 year ago

Reply to MarkraD

“..most folks with more than $250K in the bank consider that money an investment,..”

So if I “don’t consider” gong to vegas risky, should I also get a bailout?

Who cares what a bunch of yahoos “consider.” The sole and only reason they are in any position to “not consider,” but to instead just blindly hand over their money to ay old clueless conman who comes along as long as the conman is “connected” to the Junta; is specifically BECAUSE the Junta keeps insisting on robbing absolutely everyone who is even a tiny bit less clueless and stupid; for the express purpose of bailing out the stupids who run around and “consider” the tooth fairy real.

This money is not free. None of the money. Not the money stolen at gunpoint to now hand to the worthless idiots directly. Nor the additional money those who “deposited” with these clowns have had access to as a result. Nor the money paid as bonuses over the years to the SVB clowns themselves. Nor the additional money both the SVB clowns and their “depositors” have hence been able to use to bid up rents, bid away labor etc….

ALL of that cost, is borne by someone. And, like always, those someones are those who are less utterly and singularly stupid, incompetent, clueless, worthless and expendable. And as a result of decades upon decades of nothing whatsoever beside exactly this theft (literally.nothing.whatsoever), those someones are now even further behind even the most hopeless bunch of commies they are trying (more like failing) to compete with. Noone, not even an entire nation of Einstein/Rockefeller hybrids, could compete against even lobotomized cavemen, if they are forced to carry the burden of the entire post-’71 American “investor”/”ownership society” class; of which not even a single individual is even half competent at anything other than being fed loot; on their collective backs. All America is, and has been for decades (I’m not exaggerating even a little bit: ALL) is exactly this sort of theft from the competent and productive; for the benefits of exactly the sort of clueless nothings of which the SVB clowns are just the tiniest tip of an all-encompassing iceberg.

*I actually MADE a decent chunk of money off this bailout. Not directly, but indirectly. So no: I’m not an angry man who is “envious” or whatever. Just someone with at least a tiny bit of economic literacy. Anyone in possession of that, immediately recognises that the problem faced by Silicon Valley, is one of cost. Not at all one of a lack of “banks,” “bankers,” “credit,” “investors” nor “depositors.” All those are nothing more than leeches, who with the help of the Junta is inserting themselves into value chains they are vastly too dumb to even remotely comprehend, and hence driving up costs.. We still have some bright engineers here. But there is simply no amount of brightness great enough to make up for having to carry such a mountain of useless trash on their backs.

MarkraD

1 year ago

I’ve been searching for information regarding topics related to SVB and I have more questions than I started with.

First, one member (Salmo, I think) has repeatedly lamented about reserve requirements being Zero now, I thought he was embellishing, or – nuts, but it turns out to be true since 2020.

Second, investment banks can use their leverage to by assets, with zero reserve requirements, does this mean their buying power is unlimited?

Third, if question two has any degree of merit (I can’t imagine it’s unlimited), couldn’t SVB have hedged it’s treasury bets?

I’m also reading that this SVB/treasury asset devaluation problem is probably common, banks buy T’s regularly and many are now stuck with reduced value assets, though the interest will pay off ultimately, it makes them more susceptible to short term reserve needs, which again brings me back to question two.

Scooot

1 year ago

Reply to MarkraD

“Third, if question two has any degree of merit (I can’t imagine it’s unlimited), couldn’t SVB have hedged it’s treasury bets?”

They could have by shorting Treasury futures, but then if yields fell they’d have to keep rolling over their contracts and pay more margin, or cut them at a loss, or liquidate both the Bond and the hedge. Or they could use interest rate swaps, pay fixed and receive floating but they’d probably be locking in a negative cost of carry. Any hedge would wipe out the benefit of holding the position if held long enough so it would have been better not to take the risk in the first place if it was too big to handle, which it obviously was. They should have bought shorter dated assets to better match duration. It‘s simple risk management, I can’t believe they weren’t aware of it so they must have known it could’ve all gone wrong.

MarkraD

1 year ago

Reply to Scooot

They might also have shorted interest sensitive sectors, but either way, you see my point, they almost seem to have intentionally done this, which begets the question of whether there might have been an outside beneficiary willing to reciprocate the gains.

All this bizarre speculation over “whodunit”, brought to us via the repeal of Glass-Steagall.

I recall similar debates over Goldman Sachs shorts on sub-primes back in 08, they made a killing that year….shorting assets they’d created and sold to the market.

8dots

1 year ago

SVB bonds : up 80B from 20B to 100B. Down to 65B/70B after the sale, or 30B/ 80B = 38% retracement. Dump 10%/20% of the losers

for a better cash flow, better earnings and to discipline the high tech prima donnas. SVB new entity will have a lot of work to do to compete with China.

Salmo Trutta

1 year ago

Reply to 8dots

Lacy Hunt was right. SVB should have gone to the discount window.

Bam_Man

1 year ago

Reply to Salmo Trutta

Discount Rate is currently 4.75%.

They are used to it being 0.25%.

And besides, going to the Fed Discount Window for large amounts “doesn’t look good”

JackWebb

1 year ago

Reply to Bam_Man

I dare say it looks worse to collapse.

Matt3

1 year ago

Reply to Salmo Trutta

Lacy Hunt has been encouraging banks to buy long dated bonds for years! Following his advise would have lead to huge portfolio losses.

I attended a conference that he was presenting at – selling long bonds when rates were close to zero.

My guess is SVB was not able to go to the discount window and post enough securities as collateral to cover the speed of the outflows.

Salmo Trutta

1 year ago

re: “the true cause is a Fed induced search for yield mania that funded all sorts of ridiculous ideas”

That’s how QE was designed. Excess reserves were never considered a tax in the first place. Economists don’t know how the banking system works period.

Monetary policy objectives should be formulated
in terms of desired rates-of-change in monetary flows, relative to RoC’s in
R-gDp. R-gDp is the nominal anchor (“not the nominal price level or its
path”).

Doug78

1 year ago

To make the depositors whole the money has to come from somewhere. Normally the $250k guarantee comes from insurance from the RDIC and since it is an insurance the banks pay the premiums to have this insurance. Now we have many who insist that they be totally covered. To do that you would have to do that for everybody and that means the insurance premiums would have to be increased by ten times and probably much more to cover every account in every bank to unlimited amounts. It’s absurd.

Mish

1 year ago

Too nice a day here to sit. I am going hiking.

Hold down the fort.

Doug78

1 year ago

Reply to Mish

Watch out for coked up bears.

8dots

1 year ago

Reply to Mish

Mish, take a hike, let the market do the work for u.

Thetenyear

1 year ago

Reply to Mish

Take a hike. Exactly what Janet said to SVB.

8dots

1 year ago

SVB current market value is $80B. A buyer might get SVB for 70/80 cents/dollar, clear the weeds and benefit from few unicorns

that will pay dividends in the long run. When done, next week SPX will popup.

JackWebb

1 year ago

Reply to 8dots

I believe the final trades gave them a market cap of $40B.

HippyDippy

1 year ago

I like the last part where the FED will make it easier for banks to run sketchy asset allocations.

I don’t follow crypto, and this is my only source for crypto. However, it seems to me that all of this going on always have someone, very connected politically (both fake sides), committing fraud on a massive scale. I’m not saying it is some government centered ponzi scheme to create a very profitable fraud and then step in to regulate it out of its misery; but it’s certainly accomplishing that regardless. However, when a lot of money is involved, there’s no telling who’s really doing what. It’s most likely greed, creating an opportunity for the state to step in on crypto for its own purposes. But I like to juggle around as many explanations as I can.

Scooot

1 year ago

Interesting development about the UK arm here.

link to bbc.co.uk

Maximus_Minimus

1 year ago

Reply to Scooot

Vital companies that gorged on free money, cannot survive when the spigot is turned off.

Scooot

1 year ago

The Fed’s been trying to slow the economy, a knock to confidence and more caution will help to do that, so I doubt they’ll change their interest rate policy yet.

goldguy

1 year ago

We are about to see the first “bail-in” in banking…

JackWebb

1 year ago

I’ve been focused on this since Friday. The more I think about it, the less I accept the duration mismatch explanation, i.e. incompetence. Sure, it’s the surface cause, and it’s outrageously stupid, but in the words of the late Paul Harvey, we need to think about the rest of the story. Not Fed policy but the Federal Home Loan Bank of San Francisco, which quite recently funnelled billions to SVB and Silvergate.

The FHLB was founded in 1937 or ’38 to expand housing supply during the Great Depression. I want to know EXACTLY why and how they gave a single dollar to SVB or Silvergate. To quote an old friend of mine, a retired chief financial officer, if the “regulators” are serious they’ll find a proctologist with a depth perception problem to go deep, deep, deep on that one. Tug on the thread and see what happens to the suit.

My prediction: It won’t happen. Janet Yellen is a joke, barely qualified to wait tables in an overpriced cafe in Palo Alto. I suspect that the “regulators” and others (politicians) are in on that. They’ll cover it up like a cat in the litter box. The media? Too stupid, too lazy, too compromised to pursue it. Yes, Mish, there’ll be a bailout. Yes, Mish, it won’t be called that. And the media will find a way to call it a victory for Biden. The fix is in. We’ll see shortly.

pimaC

1 year ago

Reply to JackWebb

I don’t know, maybe they want to teach a lesson to banks who hire former Lehman executives… :-\

Janet Yellen Says “No Bailout of SVB” But What Does That Mean?

Share this:

Recommended Articles

Stay Informed

Subscribe to MishTalk